CMSC: In the second quarter, which specific sectors in the A-share market saw improvements in supply and demand? Which sectors saw an increase in intrinsic value return on investment?

CMSC's report states that on one hand, the rise and fall of various industries in the A-share market in the second quarter are significantly positively correlated with profit growth. Therefore, based on the mid-year report data, it is recommended to focus on specific industries where both supply and demand are improving, as these industries are likely to show improved performance in the second half of the year with high certainty of profit enhancement. On the other hand, the logic of stocks with high intrinsic return rates having declining yields and rising stock prices still exists, so it is recommended to focus on sectors with improved free cash flow or higher intrinsic value. CMSC's main points are as follows: Improvement in supply and demand in Q2 2025: Based on financial indicators (contract liabilities, gross profit margin, growth rates of ongoing projects and inventory) and medium-term economic conditions, specific sectors where the supply and demand situation is improving currently include: 1) New energy and photovoltaic industry chain: lithium battery specialized equipment, wind power equipment, photovoltaic battery components, cable components and others, photovoltaic power generation, power transmission equipment, etc.; 2) "Two New" stimulating sectors: agricultural machinery, engineering machinery components, industrial control equipment, electric passenger cars, commercial trucks, automotive electronic electrical systems, chassis and engine systems, household appliance components, etc.; 3) TMT hardware: consumer electronics components and assembly, digital chip design, panels, branded consumer electronics, integrated circuit manufacturing, semiconductor materials, etc.; 4) Military industry chain: aerospace equipment III, maritime equipment III, ground armament III, rare earths, magnetic materials, etc.; 5) Small optional consumption: snacks, beer, personal care small household appliances, branded cosmetics, pet food, entertainment products, as well as education, transportation, nuclear power, etc. Improvement in companies' real operations and intrinsic value in Q2 2025: Listed companies with high free cash flow yields or improvement in specific sectors include: 1) Some resource products with improved supply and demand structure: aluminum, copper, gold, organosilicon, textile chemical products, other chemical raw materials, etc.; 2) Consumer goods stimulated by policies or rigid demand: air conditioners, refrigerators, finished home furnishings, custom home furnishings, grain and oil processing, pig farming, livestock feed, offline pharmacies; 3) Export advantage manufacturing resonating with domestic and foreign demand: storage batteries and other batteries, motorcycles, energy and heavy equipment, inverters, panels; 4) Some infrastructure construction: aviation transport, ports, shipping, comprehensive power equipment companies, distribution equipment, thermal power generation, etc. Two recommended directions based on financial indicators: 1) Review the performance of industry indexes in the second quarter, which shows a clear positive correlation with fundamental factors. Industries with higher single-quarter profit growth rates are more likely to be at the forefront. Based on mid-year report data, it is recommended to focus on specific sectors where both supply and demand are improving, such as wind power equipment, photovoltaic battery components, consumer electronics components and assembly, digital chip design, panels, aerospace/maritime equipment, rare earths, snacks, beer, industrial control equipment, electric passenger cars, chassis and engine systems, household appliance components, etc. 2) With further improvement in the net cash flow from operating activities of listed companies in the half-year report, capital expenditures continue to decline, free cash flow continues to improve. The logic of stocks with high intrinsic return rates having declining yields and rising stock prices still exists. It is recommended to focus on specific sectors where companies' real operations and intrinsic value are improving, such as aluminum, copper, gold, air conditioners, refrigerators, grain and oil processing, pig farming, storage batteries and other batteries, motorcycles, inverters, aviation transport, ports, etc.